Gomplete Ratio Analysis

Analysts frequently wish to take an overall look at the firm's financial performance and status. Here we consider two popular approaches to a complete ratio analysis: (1) summarizing all ratios and (2) the DuPont system of analysis. The summary analysis approach tends to view all aspects of the firm's financial activities to isolate key areas of responsibility. The DuPont system acts as a search technique aimed at finding the key areas responsible for the firm's financial condition.

Summarizing All Ratios

We can use Bardett Company's ratios to perform a complete ratio analysis using both cross-sectional and time-series analysis approaches. The 2009 ratio values calculated earlier and the ratio values calculated for 2007 and 2008 for Bartlett Company, along with the industry average ratios for 2009, are summarized in Table 2.8 (see pages 72 and 73), which also shows the formula used to calculate each ratio. Using these data, we can discuss the five key aspects of Battlett's performance—liquidity, activity, debt, profitability, and market.

Liquidity

The overall liquidity of the firm seems to exhibit a reasonably stable trend, having been maintained at a level that is relatively consistent with the industry average in 2009. The firm's liquidity seems to be good.

Activity

Bardett Company's inventory appears to be in good shape. Its inventory management seems to have improved, and in 2009 it performed at a level above that of the industry. The firm may be experiencing some problems with accounts receivable. The average collection period seems to have crept up above that of the industry. Bartlett also appears to be slow in paying its bills; it pays nearly 30 days slower than the industry average. This could adversely affect the firm's credit standing. Although overall liquidity appears to be good, the management of receivables and payables should be examined. Bartlett's total asset turnover reflects a decline in the efficiency of total asset utilization between 2007 and 2008. Although in 2009 it rose to a level considerably above the industry average, it appears that the pre-2008 level of efficiency has not yet been achieved.

Summary of Bartfett Company Ratios (2007-2009, Including 2009 Industry Averages)

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